Report on Activity Based Costing Implementation at MACQ Atlas Roads

This project report comprehensively examines Activity Based Costing (ABC) and its application within the context of MACQ Atlas Roads Group. It provides an executive summary of ABC costing, which is a method for identifying and allocating costs to overhead activities and then assigning those costs to products. The report delves into the features of the ABC model, aligning it with MACQ's objectives, missions, and corporate strategies. It outlines the usage of ABC within MQA (Macquarie Atlas Roads) for road and tunnel construction, including the identification of cost drivers and the allocation of costs. The report also offers recommendations for successful ABC implementation, emphasizing the importance of top management support and employee involvement. Furthermore, it suggests Absorption Costing as an alternative management accounting tool. The report concludes with an overview of the benefits of ABC implementation, such as cost reduction, improved product quality, and enhanced management decision-making. It also discusses the alignment of ABC with MACQ's corporate strategies and the importance of consistent production for achieving its objectives. References are provided to support the analysis.

Running head: ACTIVITY BASED COSTING
Name of the Student
Name of the University
Author note

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Executive Summary:
The present project report pertains to the concept of the new concept of activity based
costing.. ABC Costing is relatively a new concept. This concept deals with the identification and
assignment of costs to overhead activities and then the assignment of those costs to products. An
activity-based costing (ABC as it is widely known) system recognizes the relationship between costs,
overhead activities, and manufactured products, and through this relationship, it assigns indirect costs
to products less capriciously than traditional methods of managerial accounting. With this in mind, a
similar kind of ABC application idea has been discussed over here. This idea, along with its proposed
management procedures, advantages and recommendations have been provided below in the
subsequent paragraphs.

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Table of Contents
Introduction:.............................................................................................................................................3
Discussion:...............................................................................................................................................3
ABC Model and its features:...............................................................................................................3
Alignment of ABC with MACQ Atlas Roads:....................................................................................4
Alignment with MACQ objectives and missions:...........................................................................4
Alignment with MACQ corporate strategies:..................................................................................5
Usage of the ABC model in MQA:.................................................................................................5
Recommendations about ABC implementation:.................................................................................6
Suggestion of another Management Accounting tool:........................................................................7
Conclusion:..............................................................................................................................................8
References:...............................................................................................................................................9

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Introduction:
This report has been prepared to delve deep into the notions of ABC Costing, more popularly
known as the Activity Based Costing method, in the context of manufacturing organisation. In this
case the report has been based on the MACQ Atlas Roads Group Ordinary Stapled Securities. It is one
of the largest road and tunnel makers in the world (Macquarie.com, 2018). The project report deals
with the implementation and the alignment of the ABC in the context of the MACQ Atlas Road
group. It contains the ways of implementation, the benefits available as well as the recommendations
about the successful implementation of the ABC.
Discussion:
ABC Model and its features:
Activity based costing is an important part of the scope of Management Accounting. It is one
of the novel methods introduced under the wing of Management Accounting. It actually refers to a
specific kind of a methodology for a more precise allocation of overhead costs to those items which
actually use it more. The basic idea behind this method, is to allocate the costs of overhead to in a just
and proportionate manner to those items which actually require much time, energy and costs
compared to the other items of produced by the concerned company. The system can be used for
specific reduction of overhead costs and it works best in more complex business setups, where
allocation of costs to different products becomes normally difficult, because of the presence of a range
of different factors, which needs to be taken into account. Here, the most important aspect of the
allocation is that the overheads would be allocated to the different items on the basis of their
consumption (Hardan and Shatnawi, 2013). The most striking revelation of this method of cost
allocation remain the fact, that this method allocates and assigns more indirect costs, into the direct
costs, more than the traditional costing method. This is where both are different. CIMA (Chartered
Institute of Management Accountants), define ABC costing as an approach, where a close tracing and

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tracking of the resource consumption of the overhead items are involved. Here the majority of the cost
driving work is done by cost drivers, who segregate the costs on the basis of their short term and long
term implications.
The major features of Activity based costing are as follows:
 One of the most striking features of this elaborate costing system is the fact, that the total cost
is segregated and classified into fixed costs and variable costs; which is necessary to provide
quality information to design a suitable costing system for any kind of manufacturing
concern.
 The distinction is made between the different kinds of behavioural pattern of the costs. These
behavioural costs are related in terms of time, volume, diversity and events of various kinds.
 In order to initiate a proper and efficient procedure of overhead cost allocation, proper cost
driver needs to be identified in order to trace the overhead, associated with the concerned
product. In a way, these cost drivers dictate the behavioural cost patterns (Kapić, 2014).
 Under the activity cost based costing, the cost are classified into two categories, short term
variable as well as long term variable. In this case, short term variable costs are allocated to
the different products on the basis of volume related cost drivers, as long term costs drivers
are driven by complex businesses and are not meant for volume related cost drivers.
Alignment of ABC with MACQ Atlas Roads:
Alignment with MACQ objectives and missions:
MQA being a global infrastructure developer, operator as well as investor, engages in mainly
production of the lifeline of each manufacturing concern, which are known as roads. It is primarily
engaged in the manufacturing business of developing and operating toll roads and tunnels around the
world. It has interests in various international markets in and around the world, including Paris,
France, Switzerland, Germany and the United States (Macquarie.com, 2018). MQA offers various
kinds of solutions to various kinds of road problems because of its robust experience in the arena of
road and infrastructure building. The main objective of the company remains to continue to develop

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high quality roads in and around the world, with most rewarding technologies in terms of returns and
investment. In accordance with the objectives of cost allocation specifically overhead allocation plays
an important part in the development of roads, bridges and tunnels etc (Bloomberg.com, 2018). The
cost procedures, production techniques and other working processes of road and tunnel building are
all actively involved in the process of ABC costing.
Alignment with MACQ corporate strategies:
MQA’s primary strategy is to deliver world class infrastructure and investment in the arena of
global infrastructure assets which would generate stable and a consistent supply of cash flows for all
its shareholders. The key actions to deliver on these strategies include, active involvement of the
senior management in order to drive high operational performance and efficiency, efficient and
disciplined capital and portfolio management, delivering and growing distributions from portfolio
assets. In order to initiate and full fill all these objectives, high amount of consistent production of the
goods and services are required (Autio et al., 2014). In order to full fill this, adoption of an efficient
management tool like ABC costing is required, in the arena of roads and tunnel development, where
MQA primary engages in. The company would in order to apply ABC, would first identify all the
functional areas of infrastructure building, their cost drivers, rates of each of these cost drivers and the
cost of each activity in order to ensure a robust implementation of the ABC and the fulfilment of all
the objectives of the MQA.
Usage of the ABC model in MQA:
The ABC based costing method traces all the relevant resources of the concern for the
efficient performance of all its activities, in order to account the costs for each objects for a more
accurate distribution of overhead costs. MQA, being an infrastructure and road developer has a range
of activities and cost centres to look after the different manufacturing activities ( Ruiz et al., 2013).
The digging of trenches, tunnel walls, laying of steel tubes, connecting the steel tubes, laying down of
the roads, all these kinds of activities goes into the play of constructing efficient roads, bridges and
tunnels. In order to initiate the successful implementation of this plan of building top notch quality of
roads and bridges, ABC must be implemented, by first identifying the costs related to the road and

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tunnel construction, loading of the primary and the secondary cost pools must be initiated in the next
step. Primary cost pools include the costs associated with advertising, procurement costs, distribution
and development costs and the secondary cost pools include the supporting cast, or to be precise the
costs incurred of the ancillary units, which support the main company. These secondary costs are later
reallocated to the primary cost pools for better overhead cost allocation. The next step, includes,
identification of the different cost drivers like the amount of time required, the amount of raw
materials available, cost of legal proceedings, government fillings, cost of raw material acquisitions
and others need to be ascertained and assessed (Mahal, and Hossain, 2015). Allocation of these costs
in the secondary cost pools to the primary cost pools is the next step to be followed. After this the
charging of the costs to the cost objects is to be done, formulation of reports of the results of the
implementation of ABC must be initiated and completed and consequently, the management and the
company should act on the results and the information collected. It would provide many advantages
such as, the company would be able to lower and consequently cut down on its distribution costs,
production quality would improve, the company would be able to keep a track of all the activity costs
of the company, building of quality roads would take place in a relatively short period of time would
take place, which would consequently lead to various kinds of trade subsidies and incentives from the
government. This would in turn motivate the senior management of the company to undertake more
activities of road building, not only for producing its primary goods of road and tunnel building but
also for being in the good books of the governments of various countries and most importantly for
maintaining its reputation of maintaining its reputation of being one of the largest builders of roads
and tunnels across continents and countries (Özkan and Karaibrahimoğlu., 2013).
Recommendations about ABC implementation:
The implementation of the process of ABC costing is not at all a cumbersome or expensive
affair, as it is widely known to be. There are proper and diligent ways for properly implementing ABC
costing in different genres of business, be it financing, costing, various departments and activities etc.

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The two important recommendations regarding the efficient implementation of the ABC costing
method are as follows:
 The implementation of the procedure of ABC costing in the construction of roads and tunnels
requires comprehensive support of the top management of the company right from the CEO,
CFO to all the board members of the company. If this support is not at all provided, then the
introduction of let alone ABC, any kind of new management tool for improving the
operations of the company would become very difficult ( Monroy, Nasiri and Peláez, 2014).
Thus, it becomes necessary for the top management of the company to assess the merits as
well as the demerits of the system and support the implementation and the application process
wholeheartedly.
 Any kind of changes made to the working procedures of any company results in a resistance
against these changes, if these changes are not properly communicated to the ground workers
of the company. The ground workers of the company are the actual workers of the company,
who work in accordance with the directions of the top management. When any new system is
implemented, they face the fear of termination of their employment if they fail to adopt to
these new changes as a result of which, they provides stiff resistance to any kind of changes
brought by the company. Thus, the management must devise proper steps to make the ground
workers understand the relative importance of these changes (Adioti and Valverde, 2013).
Moreover it would be better if the top management make these ground workers involve in the
decision making process of initiating any changes which concerns their working, performance
and career longevity.
Suggestion of another Management Accounting tool:
Absorption costing is one of the most suitable replacements for ABC costing for any kind of
manufacturing organisation. It is no different for MQA either. In Absorption costing all of
the manufacturing costs are absorbed by the number of units, which are produced by the
manufacturing concern. In other words, the production as well as the compilation cost of a finished
product in the inventory of the company would include direct materials, direct labour, along with both

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variable as well as fixed manufacturing overhead. As a result of which, absorption costing is also
widely referred to as the full costing or the full absorption method costing. It includes any and every
cost, which is directly and closely associated with the production of the goods concerned. In the case
of MQA, it is no different either. The role of absorption costing in the process of application and
allocation of the direct costs of the production process. The company would be able to directly assign
and allocate all the direct costs including materials, labours and other expenses to the construction of
roads, bridges and tunnels. Moreover, the major advantage which would be provided by absorption
costing to MQA is the fact that absorption costing takes into account all of the costs of production,
and its arena of influence is not just concerned with the direct costs, as variable costing or ABC
costing does (Weygandt et al., 2015). Absorption costing includes a company's fixed costs of
operation (such as the cost of tunnel boring machine, tunnel building machines, laying down of tunnel
walls and steel tubes),along with the salaries, rentals and various other utility bills.
Conclusion:
The most important objective of writing this report has been to highlight the importance of
activity based costing, along with its uses, implementation and features. With the help of the example
of the MACQ Atlas Roads Group Ordinary Stapled Securities, an enquiry into the implementation of
the ABC costing in the working of one of the largest infrastructure based companies of the world has
been done. Along with this, the recommendations for the successful implementation of the ABC in the
company have been provided with an intention to apply the required changes, which are necessary for
implementation has been provided.

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References:
Adioti, A.A. and Valverde, R., 2013. Time-driven activity based costing for the improvement of it
service operations. International Journal of Business and Management, 9(1), p.109.
Autio, E., Kenney, M., Mustar, P., Siegel, D. and Wright, M., 2014. Entrepreneurial innovation: The
importance of context. Research Policy, 43(7), pp.1097-1108.
Bloomberg.com. (2018). MQA:ASE Stock Quote - Macquarie Atlas Roads Group. [online] Available
at: https://www.bloomberg.com/quote/MQA:AU [Accessed 24 May 2018].
DRURY, C.M., 2013. Management and cost accounting. Springer.
Hardan, A.S. and Shatnawi, T.M., 2013. Impact of applying the ABC on improving the financial
performance in telecom companies. International Journal of Business and Management, 8(12), p.48.
Kapić, J., 2014. ACTIVITY BASED COSTING-ABC. Business Consultant/Poslovni
Konsultant, 6(32).
Macquarie.com. (2018). Atlas Arteria (ASX:ALX). [online] Available at:
https://www.macquarie.com/mgl/com/atlasroads [Accessed 24 May 2018].
Mahal, I. and Hossain, A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.Mahal, I. and Hossain, A.,
2015. Activity-Based Costing (ABC)–An Effective Tool for Better Management. Research Journal of
Finance and Accounting, 6(4), pp.66-74.
Market Index. (2018). MACQ Atlas Roads Group Ordinary Stapled Securities. [online] Available at:
https://www.marketindex.com.au/asx/mqa [Accessed 24 May 2018].

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Özkan, S. and Karaibrahimoğlu, Y.Z., 2013. Activity-based costing approach in the measurement of
cost of quality in SMEs: a case study. Total Quality Management & Business Excellence, 24(3-4),
pp.420-431.
Ruiz-de-Arbulo-Lopez, P., Fortuny-Santos, J. and Cuatrecasas-Arbós, L., 2013. Lean manufacturing:
costing the value stream. Industrial Management & Data Systems, 113(5), pp.647-668.
Tibesku, C.O., Hofer, P., Portegies, W., Ruys, C.J.M. and Fennema, P., 2013. Benefits of using
customized instrumentation in total knee arthroplasty: results from an activity-based costing
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Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John
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